UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-K
 
(Mark one)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2021


TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                       to___________
 
Commission file number 001-39043
 
BROADWAY FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
 
Delaware
 
95-4547287
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)

4601 Wilshire Boulevard, Suite 150
Los Angeles, California
 
90010
(Address of principal executive offices)
 
(Zip Code)

(323) 634-1700
(Registrant’s Telephone Number, Including Area Code)
 
Securities registered under Section 12(b) of the Act:

Title of each class:
Trading Symbol(s)
Name of each exchange on which registered:
Common Stock, par value $0.01 per share
(including attached preferred stock purchase rights)
BYFC
Nasdaq Capital Market
 
Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated, a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.
 
 
Large accelerated filer ☐
Accelerated filer ☐
     
 
Non-accelerated filer
Smaller reporting company
   
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes No ☒

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. 

State the aggregate market value of the voting and non‑voting common equity held by non‑affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $169,325,000.
 
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: As of March 31, 2022, 45,788,946 shares of the Registrant’s Class A voting common stock, 11,404,618 shares of the Registrant’s Class B non-voting common stock and 15,768,172  shares of the Registrant’s Class C non‑voting common stock were outstanding.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the Registrant’s definitive proxy statement for its 2022 annual meeting of stockholders, which will be filed no later than May 2, 2022, are incorporated by reference in Part III, Items 10 through 14 of this report.
 


TABLE OF CONTENTS
 
PART I
 

Item 1.
1

Item 1A.
24

Item 1B.
31

Item 2.
31

Item 3.
31

Item 4.
31
PART II
 

Item 5.
32

Item 6.
Reserved
 

Item 7.
33

Item 8.
46

Item 9.
46

Item 9A.
46

Item 9B.
47

Item 9C.
47
PART III
 

Item 10.
48

Item 11.
48

Item 12.
48

Item 13.
48

Item 14.
48
PART IV
 

Item 15.
49

Item 16.
51
Signatures
51
 
Forward‑Looking Statements
 
Certain statements herein, including without limitation, certain matters discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this Form 10‑K, are forward‑looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended, that reflect our current views with respect to future events and financial performance. Forward‑looking statements typically include the words “anticipate,” “believe,” “estimate,” “expect,” “project,” “plan,” “forecast,” “intend,” and other similar expressions. These forward‑looking statements are subject to risks and uncertainties, including those identified below, which could cause actual future results to differ materially from historical results or from those anticipated or implied by such statements. Readers should not place undue reliance on these forward‑looking statements, which speak only as of their dates or, if no date is provided, then as of the date of this Form 10‑K. We undertake no obligation to update or revise any forward‑looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law.
 
The following factors, among others, could cause future results to differ materially from historical results or from those indicated by forward‑looking statements included in this Form 10‑K: (1) the level of demand for mortgage and commercial loans, which is affected by such external factors as general economic conditions, market interest rate levels, tax laws and the demographics of our lending markets; (2) the direction and magnitude of changes in interest rates and the relationship between market interest rates and the yield on our interest‑earning assets and the cost of our interest‑bearing liabilities; (3) the rate and amount of loan losses incurred and projected to be incurred by us, increases in the amounts of our nonperforming assets, the level of our loss reserves and management’s judgments regarding the collectability of loans; (4) changes in the regulation of lending and deposit operations or other regulatory actions, whether industry-wide or focused on our operations, including increases in capital requirements or directives to increase loan loss allowances or make other changes in our business operations; (5) legislative or regulatory changes, including those that may be implemented by the current Administration in Washington, D.C. and the Federal Reserve Board; (6) possible adverse rulings, judgments, settlements and other outcomes of litigation; (7) problems that may arise in integrating the businesses of our pre-merger companies, which may result in the combined company not operating as effectively and efficiently as expected, or that we may not be able to successfully integrate the businesses of our pre-merger companies; (8) actions undertaken by both current and potential new competitors; (9) the possibility of adverse trends in property values or economic trends in the residential and commercial real estate markets in which we compete; (10) the effect of changes in economic conditions; (11) the effect of geopolitical uncertainties; (12) an inability to obtain and retain sufficient operating cash at our holding company; (13) the discontinuation of LIBOR as an interest rate benchmark; (14) the impact of the COVID-19 pandemic on our future financial condition and operations; (15) other risks and uncertainties detailed in this Form 10‑K, including those described in part I. Item 1A. “Risk Factors” and Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

ITEM 1.
BUSINESS
 
General
 
Broadway Financial Corporation (the “Company”) was incorporated under Delaware law in 1995 for the purpose of acquiring and holding all of the outstanding capital stock of Broadway Federal Savings and Loan Association (“Broadway Federal”) as part of the Broadway Federal’s conversion from a federally chartered mutual savings association to a federally chartered stock savings bank. In connection with the conversion, the Bank’s name was changed to Broadway Federal Bank, f.s.b. The conversion was completed, and the Bank became a wholly‑owned subsidiary of the Company, in January 1996.
 
On April 1, 2021, the Company completed its merger (the “Merger”) with CFBanc Corporation (“CFBanc”), with the Company continuing as the surviving entity. Immediately following the Merger, Broadway Federal Bank, f.s.b. (“Broadway Federal”) merged with and into City First Bank of D.C, National Association with City First Bank of D.C., National Association continuing as the surviving entity (combined with Broadway Federal, “City First” or the “Bank”). Concurrently with the Merger, the Bank changed its name to City First Bank, National Association.
 
Concurrently with the completion of the Merger, the Company converted to become a public benefit corporation. The Company works to spur equitable economic development with a mission to strengthen the overall well-being of historically excluded communities and has deployed loans and investments in the communities we serve that we believe has helped close funding gaps, preserved or increased access to affordable housing, created and preserved jobs, and expanded critical social services. We believe our status as a Delaware public benefit corporation aligns our business model of creating social, economic, and environmental value for underserved communities with a stakeholder governance model that allows us to give careful consideration to the impact of our decisions on workers, customers, suppliers, community, the environment, and our impact on society; and to align further our mission and values to our organizational documents.
 
The Company is currently regulated by the Board of Governors of the Federal Reserve System (the “FRB”). The Bank is currently regulated by the Office of the Comptroller of the Currency (the “OCC”) and the Federal Deposit Insurance Corporation (the “FDIC”). The Bank’s deposits are insured up to applicable limits by the FDIC. The Bank is also a member of the Federal Home Loan Bank of Atlanta (the “FHLB”). See “Regulation” for further descriptions of the regulatory systems to which the Company and the Bank are subject.
 
Available Information
 
Our internet website address is www.cityfirstbank.com. Our annual reports on Form 10‑K, quarterly reports on Form 10‑Q, current reports on Form 8‑K and all amendments to those reports are available on our website as soon as reasonably practicable after we file such material with, or furnish such material to, the Securities and Exchange Commission (the “SEC”) and can be obtained free of charge by sending a written request to Broadway Financial Corporation, 4160 Wilshire Boulevard, Suite 150, Los Angeles, California 90010 Attention: Audrey Phillips.
 
Business Overview
 
The Company is headquartered in Los Angeles, California and our principal business is the operation of our wholly‑owned subsidiary, City First, which has three offices: two in California (in Los Angeles and the nearby city of Inglewood) and one in Washington, D.C. City First’s principal business consists of attracting deposits from the general public in the areas surrounding our branch offices and investing those deposits, together with funds generated from operations and borrowings, primarily in mortgage loans secured by residential properties with five or more units (“multi‑family”) and commercial real estate.  Our assets also include mortgage loans secured by residential properties with one‑to‑four units (“single family”) as well as loans secured by commercial business assets. In addition, we invest in securities issued by federal government agencies, residential mortgage‑backed securities and other investments.
 
Our revenue is derived primarily from interest income on loans and investments. Our principal costs are interest expenses that we incur on deposits and borrowings, together with general and administrative expenses. Our earnings are significantly affected by general economic and competitive conditions, particularly monetary trends, and conditions, including changes in market interest rates and the differences in market interest rates for the interest bearing deposits and borrowings that are our principal funding sources and the interest yielding assets in which we invest, as well as government policies and actions of regulatory authorities.
 
The ongoing COVID-19 pandemic (“Pandemic”) has caused significant disruption in the local,  national  and global economies and financial markets. Continuation and further spread of the Pandemic could cause additional quarantines, shutdowns, reduction in business activity and financial transactions, labor shortages, supply chain interruptions and overall economic and financial market instability. The Pandemic could  disrupt our operations through its impact on our employees, depositors, borrowers, and the tenants of our multi-family loan borrowers. The disruptions in the  economy may impair the ability of our borrowers to make their monthly loan payments, which could result in significant increases in delinquencies, defaults, foreclosures, declining collateral values, and losses on our loans.
 
The Pandemic may also materially disrupt banking and other financial activity generally and in the areas in which the Bank operates. This may result in a decline in customer demand for our products and services, including loans and deposits which could negatively impact our liquidity position and our growth strategy.  Any one or more of these developments could have a material adverse effect on our business, operations, consolidated financial condition, and consolidated results of operations.
 
Lending Activities
 
General
 
Our loan portfolio is comprised primarily of mortgage loans which are secured by multi‑family residential properties, single family residential properties and commercial real estate, including charter schools, community facilities, and churches. The remainder of the loan portfolio consists of commercial business loans, loans guaranteed by the Small Business Administration (the “SBA”) and construction-to-permanent loans. At December 31, 2021, our net loan portfolio, excluding loans held for sale, totaled $648.5 million, or 59.3% of total assets.
 
We emphasize the origination of adjustable‑rate mortgage loans (“ARM Loans”), most of which are hybrid ARM Loans (ARM Loans having an initial fixed rate period, followed by an adjustable rate period), for our portfolio of loans held for investment and held for sale. We originate these loans in order to maintain a high percentage of loans that have provisions for periodic repricing, thereby reducing our exposure to interest rate risk. At December 31, 2021, more than 69% of our mortgage loans had adjustable rate features. However, most of our adjustable rate loans behave like fixed rate loans for periods of time because the loans may still be in their initial fixed‑rate period or may be subject to interest rate floors.
 
The types of loans that we originate are subject to federal laws and regulations. The interest rates that we charge on loans are affected by the demand for such loans, the supply of money available for lending purposes and the rates offered by competitors. These factors are in turn affected by, among other things, economic conditions, monetary policies of the federal government, including the FRB, and legislative tax policies.
 
The following table details the composition of our portfolio of loans held for investment by type, dollar amount and percentage of loan portfolio at the dates indicated:

   
December 31,
 
   
2021
   
2020
   
2019
   
2018
   
2017
 
   
Amount
   
Percent
of total
   
Amount
   
Percent
of total
   
Amount
   
Percent
of total
   
Amount
   
Percent
of total
   
Amount
   
Percent
of total
 
   
(Dollars in thousands)
 
Single family
 
$
45,372
     
6.96
%
 
$
48,217
     
13.32
%
 
$
72,883
     
18.23
%
 
$
91,835
     
25.69
%
 
$
111,085
     
32.93
%
Multi‑family
   
393,704
     
60.36
%
   
272,387
     
75.24
%
   
287,378
     
71.90
%
   
231,870
     
64.86
%
   
187,455
     
55.57
%
Commercial real estate
   
93,193
     
14.29
%
   
24,289
     
6.71
%
   
14,728
     
3.68
%
   
5,802
     
1.62
%
   
6,089
     
1.80
%
Church
   
22,503
     
3.45
%
   
16,658
     
4.60
%
   
21,301
     
5.33
%
   
25,934
     
7.25
%
   
30,848
     
9.14
%
Construction
   
32,072
     
4.92
%
   
429
     
0.11
%
   
3,128
     
0.78
%
   
1,876
     
0.52
%
   
1,678
     
0.50
%
Commercial
   
46,539
     
10.02
%
   
57
     
0.02
%
   
262
     
0.07
%
   
226
     
0.06
%
   
192
     
0.06
%
SBA Loans
   
18,837
     
2.89
%
                                                               
Consumer
   
-
             
7
     
0.00
%
   
21
     
0.01
%
   
5
     
0.00
%
   
7
     
0.00
%
Gross loans
   
652,220
     
100.00
%
   
362,044
     
100.00
%
   
399,701
     
100.00
%
   
357,548
     
100.00
%
   
337,354
     
100.00
%
Plus:
                                                                               
Premiums on loans purchased
   
58
             
88
             
171
             
259
             
360
         
Deferred loan costs, net
   
1,471
             
1,218
             
1,211
             
721
             
1,220
         
Less:
                                                                               
Credit and interest marks on purchased loans, net
   
1842
             
-
             
-
             
-
             
-
         
Unamortized discounts
   
3
             
6
             
54
             
43
             
14
         
Allowance for loan losses
   
3.391
             
3,215
             
3,182
             
2,929
             
4,069
         
Total loans held for investment
 
$
648,513
           
$
360,129
           
$
397,847
           
$
355,556
           
$
334,851
         
 
Multi‑Family and Commercial Real Estate Lending
 
Our primary lending emphasis has been on the origination of loans for apartment buildings with five or more units. These multi‑family loans amounted to $393.7 million and $272.4 million at December 31, 2021 and 2020, respectively. Multi‑family loans represented 60.36% of our gross loan portfolio at December 31, 2021 compared to 75.24% of our gross loan portfolio at December 31, 2020. The vast majority of our multi‑family loans amortize over 30 years. As of December 31, 2021, our single largest multi‑family credit had an outstanding balance of $6.8 million, was current, and was secured by a 33‑unit apartment complex in Vista, California. At December 31, 2021, the average balance of a loan in our multi‑family portfolio was $1.1 million.
 
Our commercial real estate loans amounted to $93.2 million and $24.3 million at December 31, 2021 and 2020, respectively. Commercial real estate loans represented 14.29% and 6.71% of our gross loan portfolios at December 31, 2021 and 2020, respectively. Most commercial real estate loans are originated with principal repayments on a 25- to 30-year amortization schedule but are due in 5 years or 10 years. As of December 31, 2021, our single largest commercial real estate credit had an outstanding principal balance of $9.7 million, was current, and was secured by a charter school building located in Washington, D.C. At December 31, 2021, the average balance of a loan in our commercial real estate portfolio was $866 thousand.
 
The interest rates on multi‑family and commercial ARM Loans are based on a variety of indices, including the Secured Overnight Financing Rate (“SOFR”), the 1‑Year Constant Maturity Treasury Index (“1‑Yr CMT”), the 12‑Month Treasury Average Index (“12‑MTA”), the 11th District Cost of Funds Index (“COFI”), and the Wall Street Journal Prime Rate (“Prime Rate”). All loans previously indexed to LIBOR were converted to SOFR as of December 31, 2021. We currently offer adjustable rate loans with interest rates that adjust either semi‑annually or semi‑annually upon expiration of an initial three‑ or five‑year fixed rate period. Borrowers are required to make monthly payments under the terms of such loans.
 
Loans secured by multi‑family and commercial properties are granted based on the income producing potential of the property and the financial strength of the borrower. The primary factors considered include, among other things, the net operating income of the mortgaged premises before debt service and depreciation, the debt service coverage ratio (the ratio of net operating income to required principal and interest payments, or debt service), and the ratio of the loan amount to the lower of the purchase price or the appraised value of the collateral.
 
We seek to mitigate the risks associated with multi‑family and commercial real estate loans by applying appropriate underwriting requirements, which include limitations on loan‑to‑value ratios and debt service coverage ratios. Under our underwriting policies, loan‑to‑value ratios on our multi‑family and commercial real estate loans usually do not exceed 75% of the lower of the purchase price or the appraised value of the underlying property. We also generally require minimum debt service coverage ratios of 120% for multi‑family loans and commercial real estate loans. Properties securing multi‑family and commercial real estate loans are appraised by management‑approved independent appraisers. Title insurance is required on all loans.
 
Multi‑family and commercial real estate loans are generally viewed as exposing the lender to a greater risk of loss than single family residential loans and typically involve higher loan principal amounts than loans secured by single family residential real estate. Because payments on loans secured by multi‑family and commercial real properties are often dependent on the successful operation or management of the properties, repayment of such loans may be subject to adverse conditions in the real estate market or general economy. Adverse economic conditions in our primary lending market area could result in reduced cash flows on multi‑family and commercial real estate loans, vacancies and reduced rental rates on such properties. We seek to reduce these risks by originating such loans on a selective basis and generally restrict such loans to our general market area. In 2008, Broadway Federal ceased out‑of‑state lending for all types of loans.  As a result of the Merger, in 2021 we resumed out-of-state lending on a selective basis, however we currently do not have any loans outstanding that are outside of our market area, which consists of Southern California and the Washington, D.C. area (including parts of Maryland and Virginia).
 
Our church loans totaled $22.5 million and $16.7 million at December 31, 2021 and 2020, respectively, which represented 3.45% and 4.60% of our gross loan portfolio at December 31, 2021 and 2020, respectively. Broadway Federal ceased originating church loans in 2010 in Southern California, however City First originates loans to churches in the Washington D.C. area as part of its community development mission. As of December 31, 2021, our single largest church loan had an outstanding balance of $3.8 million, was current, and was secured by a church building in Upper Marlboro, Maryland. At December 31, 2021, the average balance of a loan in our church loan portfolio was $726 thousand.
 
Single Family Mortgage Lending
 
While we have historically been primarily a multi‑family and commercial real estate lender, we also have purchased or originated loans secured by single family residential properties, including investor‑owned properties, with maturities of up to 30 years. Single family loans totaled $45.4 million and $48.2 million at December 31, 2021 and 2020, respectively. Of the single family residential mortgage loans outstanding at December 31, 2021, more than 51% had adjustable rate features. We did not purchase any single family loans during 2021 and 2020. Of the $45.4 million of single family loans at December 31, 2021, $23.3 million are secured by investor‑owned properties.
 
The interest rates for our single family ARM Loans are indexed to COFI, SOFR, 12‑MTA and 1‑Yr. CMT. All loans previously indexed to LIBOR were converted to SOFR as of December 31, 2021.  We currently offer loans with interest rates that adjust either semi‑annually or semi‑annually upon expiration of an initial three‑ or five‑year fixed rate period. Borrowers are required to make monthly payments under the terms of such loans.  Most of our single family adjustable rate loans behave like fixed rate loans because the loans are still in their initial fixed rate period or are subject to interest rate floors.
 
We qualify our ARM Loan borrowers based upon the fully indexed interest rate (SOFR or other index plus an applicable margin) provided by the terms of the loan. However, we may discount the initial rate paid by the borrower to adjust for market and other competitive factors. The ARM Loans that we offer have a lifetime adjustment limit that is set at the time that the loan is approved. In addition, because of interest rate caps and floors, market rates may exceed or go below the respective maximum or minimum rates payable on our ARM Loans.
 
The mortgage loans that we originate generally include due‑on‑sale clauses, which provide us with the contractual right to declare the loan immediately due and payable if the borrower transfers ownership of the property.
 
Construction Lending
 
The Merger added a construction lending program and portfolio to our existing lending operations and platform. Construction loans totaled $32.1 million and $429 thousand at December 31, 2021 and 2020, respectively, and represented 4.92% of our gross loan portfolio at December 31, 2021. We acquired $19.8 million of construction loans in the Merger. We provide loans for the construction of single family, multi‑family and commercial real estate projects and for land development. We generally make construction and land loans at variable interest rates based upon the Prime Rate, or the applicable Treasury Index plus a margin. Generally, we require a loan‑to‑value ratio not exceeding 75% and a loan‑to‑cost ratio not exceeding 85% on construction loans.
 
Construction loans involve risks that are different from those for completed project lending because we advance loan funds based upon the security and estimated value at completion of the project under construction. If the borrower defaults on the loan, we may have to advance additional funds to finance the project’s completion before the project can be sold. Moreover, construction projects are affected by uncertainties inherent in estimating construction costs, potential delays in construction schedules due to supply chain or other issues, market demand and the accuracy of estimates of the value of the completed project considered in the loan approval process. In addition, construction projects can be risky as they transition to completion and lease‑up. Tenants who may have been interested in leasing a unit or apartment may not be able to afford the space when the building is completed, or may fail to lease the space for other reasons such as more attractive terms offered by competing lessors, making it difficult for the building to generate enough cash flow for the owner to obtain permanent financing. We specialize in the origination of construction loans for affordable housing developments where rents are subsidized by housing authority agencies. During 2021, we originated $24.9 million of construction loans, compared to $1.5 million of construction loan originations during 2020.
 
Commercial Lending
 
The Merger also expanded our portfolio of loans and lending activities to businesses in our market area that are secured by business assets including inventory, receivables, machinery, and equipment. As of December 31, 2021 and 2020, non-real estate commercial loans totaled $46.5 million and $57 thousand, respectively. Commercial loans represented 10.02% of our loan portfolio as of December 31, 2021. We acquired $36.1 million of commercial loans in the Merger, and originated another $26.5 million of commercial loans during the year ended December 31, 2021. As of December 31, 2021, our single largest commercial loan had an outstanding balance of $4.3 million. At December 31, 2021, the average balance of a loan in our non-real estate commercial loan portfolio was $1.0 million.
 
The risks related to commercial loans differ from loans secured by real estate, and relate to the ability of borrowers to successfully operate their businesses and the difference between expected and actual cash flows of the borrowers. In addition, the recoverability of our investment in these loans is also dependent on other factors primarily dictated by the type of collateral securing these loans. The fair value of the collateral securing these loans may fluctuate as market conditions change. In the case of loans secured by accounts receivable, the recovery of our investment is dependent upon the borrower’s ability to collect amounts due from customers.
 
SBA Guaranteed Loans
 
City First is an approved SBA lender. We originate loans in the District of Columbia, Maryland, and Virginia under the SBA’s 7(a), SBA Express, International Trade and 504(a) loan programs, in conformity with SBA underwriting and documentation standards. SBA loans are similar to commercial business loans but have additional credit enhancement provided by the U.S Federal Government with guarantees between 50-85%. Certain loans classified as SBA are secured by commercial real estate property. All other SBA loans are secured by business assets. As of December 31, 2021, SBA loans totaled $18.8 million and included $18.0 million of loans issued under the Paycheck Protection Program (“PPP”) loans. PPP loans have terms of two to five years and earn interest at 1%. PPP loans are fully guaranteed by the SBA and have virtually no risk of loss. The Bank expects the vast majority of the PPP loans to be fully forgiven by the SBA. SBA loans totaled 2.89%% of our total loan portfolio as of December 31, 2021. We had no such SBA or PPP loans as of December 31, 2020.
 
Loan Originations, Purchases and Sales
 
The following table summarizes loan originations, purchases, sales, and principal repayments for the periods indicated:
 
   
2021
   
2020
   
2019
 
   
(In thousands)
 
Gross loans (1):
                 
Beginning balance
 
$
362,044
   
$
399,701
   
$
363,761
 
Loans acquired in the merger with CFBanc
   
225,885
     
-
     
-
 
Loans originated:
                       
Multi‑family
   
167,097
     
120,809
     
103,123
 
Commercial real estate
   
43,567
     
11,870
     
9,521
 
PPP Loans
   
26,497
     
-
     
-
 
Construction
   
24,884
     
1,529
     
1,681
 
Commercial
   
4,942
     
66
     
49
 
Total loans originated
   
266,987
     
134,274
     
114,374
 
Less:
                       
Principal repayments
   
202,696
     
67,858
     
55,742
 
Sales of loans
   
-
     
104,073
     
22,703
 
Loan charge‑offs
   
-
     
-
   
 
Lower of cost or fair value adjustment on loans held for sale
   
-
     
-
     
(11
)
Transfer of loans to real estate owned
   
-
     
-
   
 
Ending balance
 
$
652,220
   
$
362,044
   
$
399,701
 



(1)
Amount is before deferred origination costs, purchase premiums and discounts, and the allowance for loan losses.
 
Loan originations are derived from various sources including our loan personnel, local mortgage brokers, and referrals from customers. More than 90% of multi-family loan originations during 2021, 2020 and 2019 were  sourced from wholesale loan brokers. All commercial real estate loans, construction loans, commercial loans and SBA loans were derived from our loan personnel. No single family or consumer loans were originated during the last three years. For all loans that we originate, upon receipt of a loan application from a prospective borrower, a credit report is ordered, and certain other information is verified by an independent credit agency. If necessary, additional financial information is requested. An appraisal of the real estate intended to secure the proposed loan is required to be performed by an independent licensed or certified appraiser designated and approved by us. The Bank’s Board of Directors (the “Board”) annually reviews our appraisal policy. Management reviews annually the qualifications and performance of independent appraisers that we use.
 
It is our policy to obtain title insurance on collateral for all real estate loans. Borrowers must also obtain hazard insurance naming the Bank as a loss payee prior to loan closing. If the original loan amount exceeds 80% on a sale or refinance of a first trust deed loan, we may require private mortgage insurance and the borrower is required to make payments to a mortgage impound account from which we make disbursements to pay private mortgage insurance premiums, property taxes and hazard and flood insurance as required.
 
Each loan requires at least two (2) signatures for approval. The Board has authorized loan approval limits for various management team members up to $7 million per individual, and up to $12 million for the Chief Executive. Loans in excess of $7 million require review and approval by members of the Board Loan Committee. In addition, it is our practice that all loans approved be reported to the Loan Committee no later than the month following their approval and be ratified by the Board.
 
From time to time, we purchase loans originated by other institutions based upon our investment needs and market opportunities. The determination to purchase specific loans or pools of loans is subject to our underwriting policies, which consider, among other factors, the financial condition of the borrowers, the location of the underlying collateral properties and the appraised value of the collateral properties. We did not purchase any loans during the years ended December 31, 2021, 2020 or 2019.
 
We originate loans for investment and for sale. Loan sales are generally made from the loans held‑for‑sale portfolio. During 2021, we did not originate or sell any loans that were classified as held for sale. During 2020, we originated $118.6 million of multi‑family loans for sale, sold $104.3 million of multi‑family loans and transferred $13.7 million of multi-family loans to held for investment from loans held for sale. We transferred the $13.7 million of multi-family loans to loans held for investment near the end of 2020 because there was room to do so within the regulatory loan concentration guidelines. Loans are generally sold with the servicing released.
 
Loan Maturity and Repricing
 
The following table shows the contractual maturities of loans in our portfolio of loans held for investment at December 31, 2021 and does not reflect the effect of prepayments or scheduled principal amortization.
 
   
Single
Family
   
Multi‑
Family
   
Commercial
Real Estate
   
Church
   
Construction
   
Commercial
   
SBA
   
Gross
Loans
 
                                                 
Amounts Due:
                                               
After one year:
                                               
One year to five years
 
$
7,774
   
$
18,458
   
$
51,725
   
$
13,197
   
$
543
   
$
21,115
   
$
18,737
   
$
131,549
 
After five years
   
37,182
     
371,568
     
33,955
     
6,301
     
12,887
     
15,702
     
100
     
477,695
 
Total due after one year
   
44,956
     
390,026
     
85,680
     
19,498
     
13,430
     
36,817
     
18,837
     
609,244
 
One year or less
   
416
     
3,678
     
7,513
     
3,005
     
18,541
     
9,722
     
-
     
42,976
 
Total
 
$
45,372
   
$
393,704
   
$
93,193
   
$
22,503
   
$
32,072
   
$
46,539
   
$
18,837
   
$
652,220
 
 
All loan types other than multi-family loans have fixed interest rates. Certain multi-family loans have adjustable rate features based on SOFR, but are fixed for the first five years. Our experience has shown that these loans typically pay off during the first five years and do not reach the adjustable rate phase. Multi-family loans in their initial fixed rate period totaled $326.0 million or 50% of our loan portfolio at December 31, 2021.
 
Asset Quality
 
General
 
The underlying credit quality of our loan portfolio is dependent primarily on each borrower’s ability to continue to make required loan payments and, in the event a borrower is unable to continue to do so, the value of the collateral securing the loan, if any. A borrower’s ability to pay, in the case of single family residential loans and consumer loans, typically is dependent primarily on employment and other sources of income. Multi‑family and commercial real estate loan borrowers’ ability to pay is typically dependent on the cash flow generated by the property, which in turn is impacted by general economic conditions. Commercial business and SBA loan borrowers’ ability to pay is typically dependent on the successful operation of their businesses or their ability to collect amounts due from their customers. Other factors, such as unanticipated expenditures or changes in the financial markets, may also impact a borrower’s ability to make loan payments. Collateral values, particularly real estate values, are also impacted by a variety of factors, including general economic conditions, demographics, property maintenance and collection or foreclosure delays.
 
Delinquencies
 
We perform a weekly review of all delinquent loans and a monthly loan delinquency report is made to the Internal Asset Review Committee of the Board of Directors. When a borrower fails to make a required payment on a loan, we take several steps to induce the borrower to cure the delinquency and restore the loan to current status. The procedures we follow with respect to delinquencies vary depending on the type of loan, the type of property securing the loan, and the period of delinquency. In the case of residential mortgage loans, we generally send the borrower a written notice of non‑payment promptly after the loan becomes past due. In the event payment is not received promptly thereafter, additional letters are sent, and telephone calls are made. If the loan is still not brought current and it becomes necessary for us to take legal action, we generally commence foreclosure proceedings on all real property securing the loan. In the case of commercial real estate loans, we generally contact the borrower by telephone and send a written notice of intent to foreclose upon expiration of the applicable grace period. Decisions not to commence foreclosure upon expiration of the notice of intent to foreclose for commercial real estate loans are made on a case‑by‑case basis. We may consider loan workout arrangements with commercial real estate borrowers in certain circumstances.
 
The following table shows our loan delinquencies by type and amount at the dates indicated:

   
December 31, 2021
 
December 31, 2020
 
December 31, 2019
 
   
Loans delinquent
 
Loans delinquent
 
Loans delinquent
 
   
60‑89 Days
   
90 days or more
 
60‑89 Days
   
90 days or more
 
60‑89 Days
   
90 days or more
 
   
Number
   
Amount
   
Number
 
Amount
 
Number
   
Amount
   
Number
 
Amount
 
Number
   
Amount
   
Number
   
Amount
 
   
(Dollars in thousands)
 
Commercial Real Estate
   
1
   
$
2,423
     
-
 
$
-
   
-
   
$
     
-
 
$
-
   
-
   
$
     
-
   
$
 
Single family
   
-
   
$
-
   
 
$
 -    
-
   
$
-
   
 
$
 -    
1
   
$
18
   
   
$
-
 
Total
   
1
   
$
2,423
   
 
$
 -    
-
   
$
-
   
 
$
 -    
1
   
$
18
   
   
$
 
% of Gross Loans
           
0.37
%
       

0.00
%
         
0.00
%
       

0.00
%
         
0.00
%
           
0.00
%

Non‑Performing Assets
 
Non‑performing assets (“NPAs”) include non‑accrual loans and real estate owned through foreclosure or deed in lieu of foreclosure (“REO”). NPAs at December 31, 2021 decreased to $684 thousand, or 0.06% of total assets, from $787 thousand, or 0.16% of total assets, at December 31, 2020.
 
Non-accrual loans consist of delinquent loans that are 90 days or more past due and other loans, including troubled debt restructurings (“TDRs”) that do not qualify for accrual status. As of December 31, 2021, all our non‑accrual loans were current in their payments, but were treated as non‑accrual primarily because of deficiencies in non‑payment matters related to the borrowers, such as lack of current financial information. The $103 thousand decrease in non‑accrual loans during the year ended December 31, 2021 was the result of payments received from borrowers that were applied to the outstanding principal balance.
 
The following table provides information regarding our non‑performing assets at the dates indicated:
 
   
December 31,
 
   
2021
   
2020
   
2019
   
2018
   
2017
 
   
(Dollars in thousands)
 
Non‑accrual loans:
                             
Single family
 
$
-
   
$
1
   
$
18
   
$
-
   
$
-
 
Multi‑family
 
   
   
   
   
 
Commercial real estate
 
   
   
   
   
 
Church
   
684
     
786
     
406
     
911
     
1,766
 
Commercial
 
   
   
   
   
 
Total non‑accrual loans
   
684
     
787
     
424
     
911
     
1,766
 
Loans delinquent 90 days or more and still accruing
 
   
   
   
   
 
Real estate owned acquired through foreclosure
   
-
     
-
     
-
     
833
     
878
 
Total non‑performing assets
 
$
684
   
$
787
   
$
424
   
$
1,744
   
$
2,644
 
Non‑accrual loans as a percentage of gross loans, including loans receivable held for sale
   
0.10
%
   
0.22
%
   
0.11
%
   
0.25
%
   
0.49
%
Non‑performing assets as a percentage of total assets
   
0.06
%
   
0.16
%
   
0.10
%
   
0.43
%
   
0.64
%
 
There were no accrual loans that were contractually past due by 90 days or more at December 31, 2021 or 2020. We had no commitments to lend additional funds to borrowers whose loans were on non‑accrual status at December 31, 2021.
 
We discontinue accruing interest on loans when the loans become 90 days delinquent as to their payment due date (missed three payments). In addition, we reverse all previously accrued and uncollected interest for those loans through a charge to interest income. While loans are in non‑accrual status, interest received on such loans is credited to principal, until the loans qualify for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
 
We may from time to time agree to modify the contractual terms of a borrower’s loan. In cases where such modifications represent a concession to a borrower experiencing financial difficulty, the modification is considered a TDR. Non‑accrual loans modified in a TDR remain on non‑accrual status until we determine that future collection of principal and interest is reasonably assured, which requires that the borrower demonstrate performance according to the restructured terms, generally for a period of at least six months. Loans modified in a TDR that are included in non‑accrual loans totaled $684 thousand at December 31, 2021 and $232 thousand at December 31, 2020. Excluded from non‑accrual loans are restructured loans that were not delinquent at the time of modification or loans that have complied with the terms of their restructured agreement for six months or such longer period as management deems appropriate for particular loans, and therefore have been returned to accruing status. Restructured accruing loans totaled $1.6 million at December 31, 2021 and $4.2 million at December 31, 2020.
 
During 2021, gross interest income that would have been recorded on non‑accrual loans had they performed in accordance with their original terms, totaled $71 thousand. No income was actually recognized during 2021 related to non-accrual loans.
 
On March 27, 2020, the Coronavirus Aid Relief and Economic Security Act (the “CARES Act”) was signed into law by Congress. The CARES Act provides financial institutions, under specific circumstances, the opportunity to temporarily suspend certain requirements under generally accepted accounting principles related to TDRs for a limited period of time to account for the effects of COVID-19.  In March 2020, a joint statement was issued by federal and state regulatory agencies, after consultation with the FASB, to clarify that short-term loan modifications, such as payment deferrals, fee waivers, extensions of repayment terms or other insignificant payment delays, are not TDRs if made on a good-faith basis in response to COVID-19 to borrowers who were current prior to any relief. Under this guidance, nine months or less is provided as an example of short-term, and current is defined as less than 30 days past due at the time the modification program is implemented.  The guidance also provides that these modified loans generally will not be classified as non-accrual loans during the term of the modification.
 
The Bank has implemented a loan modification program for the effects of COVID-19 on its borrowers. At the date of this filing, two borrowers have requested applications, but no applications for loan modifications have been formally submitted. Both borrowers were current at the time modification program was implemented.  To date, no modifications have been granted.
 
We update our estimates of collateral value on loans when they become 90 days past due and to the extent the loans remain delinquent, every nine months thereafter. We obtain updated estimates of collateral value earlier than at 90 days past due for loans to borrowers who have filed for bankruptcy or for certain other loans when our Internal Asset Review Committee believes repayment of such loans may be dependent on the value of the underlying collateral. We also obtain updated collateral valuations for loans classified as substandard every year. For single family loans, updated estimates of collateral value are obtained through appraisals and automated valuation models. For multi‑family and commercial real estate properties, we estimate collateral value through appraisals or internal cash flow analyses when current financial information is available, coupled with, in most cases, an inspection of the property. For commercial loans, we estimate the value of the collateral based on financial information provided by borrowers or valuations of business assets, depending on the nature of the collateral. Our policy is to make a charge against our allowance for loan losses, and correspondingly reduce the book value of a loan, to the extent that the collateral value of the property securing an impaired loan is less than our recorded investment in the loan. See “Allowance for Loan Losses” for full discussion of the allowance for loan losses.
 
REO is real estate acquired as a result of foreclosure or by deed in lieu of foreclosure and is carried at fair value less estimated selling costs. Any excess of carrying value over fair value at the time of acquisition is charged to the allowance for loan losses. Thereafter, we charge non‑interest expense for the property maintenance and protection expenses incurred as a result of owning the property. Any decreases in the property’s estimated fair value after foreclosure are recorded in a separate allowance for losses on REO. During 2021 and 2020, the Bank did not foreclose on any loans and not have any property classified as REO.
 
As a result of the Merger, we acquired certain loans that have shown evidence of credit deterioration since origination. These loans are referred to as purchased credit impaired loans (“PCI loans”). These PCI loans are recorded at their fair value at acquisition, and are not treated as nonaccrual loans for purposes of financial reporting. At acquisition we estimate the amount and timing of expected cash flows for each PCI loan, and the expected cash flows in excess of the allocated fair value is recorded as interest income over the remaining life of the loan (accretable yield). The excess of the loan’s contractual principal and interest over expected cash flows is not recorded (non-accretable difference). Expected cash flows continue to be estimated each quarter for each PCI loan. If the present value of expected cash flows decreases from the prior estimate, a provision for loan losses is recorded and an allowance for loan losses is established. If the present value of expected cash flows increases from the prior estimate, the increase is recognized as part of future interest income. At the date of the Merger, we recorded an investment in PCI loans of $883 thousand. As of December 31, 2021, our recorded investment in PCI loans was $845 thousand. These PCI loans are not classified as NPAs as they are performing in accordance with the cash flows that were expected at the date of the Merger.
 
Classification of Assets

Federal regulations and our internal policies require that we utilize an asset classification system as a means of monitoring and reporting problem and potential problem assets. We have incorporated asset classifications as a part of our credit monitoring system and thus classify potential problem assets as “Watch” and “Special Mention,” and problem assets as “Substandard,” “Doubtful” or “Loss”. An asset is considered “Watch” if the loan is current but temporarily presents higher than average risk and warrants greater than routine attention and monitoring. An asset is considered “Special Mention” if the loan is current but there are some potential weaknesses that deserve management’s close attention. An asset is considered “Substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “Doubtful” have all the weaknesses inherent in those classified “Substandard” with the added characteristic that the weaknesses make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “Loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss allowance is not warranted. Assets which do not currently expose us to sufficient risk to warrant classification in one of the aforementioned categories, but that are considered to possess some weaknesses, are designated “Special Mention.” Our Internal Asset Review Department reviews and classifies our assets and independently reports the results of its reviews to the Internal Asset Review Committee of our Board of Directors monthly.
 
The following table provides information regarding our criticized loans (Watch and Special Mention) and classified assets (Substandard) at the dates indicated:
 
   
December 31, 2021
   
December 31, 2020
 
   
Number
   
Amount
   
Number
   
Amount
 
   
(Dollars in thousands)
 
Watch loans
   
8
   
$
15,950
     
2
   
$
2,145
 
Special mention loans
   
-
     
-
     
-
     
-
 
Total criticized loans
   
8
     
15,950
     
2
     
2,145
 
Substandard loans
   
7
     
4,283
     
9
     
3,162
 
Total classified assets
   
7
     
4,283
     
9
     
3,162
 
Total
   
15
   
$
20,233
     
11
   
$
5,307
 
 
Criticized assets increased to $16.0 million at December 31, 2021, from $2.1 million at December 31, 2020. City First has historically classified all newly originated construction loans as Watch until a history of loan performance can be established or until the construction project is complete, which is the main reason for the increase in total criticized loans of $13.8 million during 2021.  The increase in substandard loans of $1.1 million was due to the down grade of one commercial real estate loan. The loan was current as of December 31, 2021.
 
Allowance for Loan Losses
 
In originating loans, we recognize that losses may be experienced on loans and that the risk of loss may vary as a result of many factors, including the type of loan being made, the creditworthiness of the borrower, general economic conditions and, in the case of a secured loan, the quality of the collateral for the loan. We are required to maintain an adequate allowance for loan and lease losses (“ALLL”) in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). The ALLL represents our management’s best estimate of probable incurred credit losses in our loan portfolio as of the date of the consolidated financial statements. Our ALLL is intended to cover specifically identifiable loan losses, as well as estimated losses inherent in our portfolio for which certain losses are probable, but not specifically identifiable. There can be no assurance, however, that actual losses incurred will not exceed the amount of management’s estimates.
 
Our Internal Asset Review Department issues reports to the Board of Directors and continually reviews loan quality. This analysis includes a detailed review of the classification and categorization of problem loans, potential problem loans and loans to be charged off, an assessment of the overall quality and collectability of the portfolio, and concentration of credit risk. Management then evaluates the allowance, determines its appropriate level and the need for additional provisions, and presents its analysis to the Board of Directors which ultimately reviews management’s recommendation and, if deemed appropriate, then approves such recommendation.
 
The ALLL is increased by provisions for loan losses which are charged to earnings and is decreased by recaptures of loan loss provision and charge‑offs, net of recoveries. Provisions are recorded to increase the ALLL to the level deemed appropriate by management. The Bank utilizes an allowance methodology that considers a number of quantitative and qualitative factors, including the amount of non‑performing loans, our loan loss experience, conditions in the general real estate and housing markets, current economic conditions, and trends, particularly levels of unemployment, and changes in the size of the loan portfolio.
 
The ALLL consists of specific and general components. The specific component relates to loans that are individually classified as impaired.
 
A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Loans for which the terms have been modified, and for which the borrower is experiencing financial difficulties, are considered TDRs and classified as impaired. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case‑by‑case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.
 
If a loan is impaired, a portion of the allowance is allocated to the loan so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. TDRs are separately identified for impairment and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a TDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral less estimated selling costs. For TDRs that subsequently default, we determine the amount of any necessary additional charge‑off based on internal analyses and appraisals of the underlying collateral securing these loans. At December 31, 2021, impaired loans totaled $2.3 million and had an aggregate specific allowance allocation of $7 thousand.
 
The general component of the ALLL covers non‑impaired loans and is based on historical loss experience adjusted for qualitative factors. Each month, we prepare an analysis which categorizes the entire loan portfolio by certain risk characteristics such as loan type (single family, multi‑family, commercial real estate, construction, commercial, SBA and consumer) and loan classification (pass, watch, special mention, substandard and doubtful). With the use of a migration to loss analysis, we calculate our historical loss rate and assign estimated loss factors to the loan classification categories based on our assessment of the potential risk inherent in each loan type. These factors are periodically reviewed for appropriateness giving consideration to our historical loss experience, levels of and trends in delinquencies and impaired loans; levels of and trends in charge‑offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations.
 
In addition to loss experience and environmental factors, we use qualitative analyses to determine the adequacy of our ALLL. This analysis includes ratio analysis to evaluate the overall measurement of the ALLL and comparison of peer group reserve percentages. The qualitative review is used to reassess the overall determination of the ALLL and to ensure that directional changes in the ALLL and the provision for loan losses are supported by relevant internal and external data.
 
Loans acquired in the Merger were recorded at fair value at acquisition date without a carryover of the related ALLL. Purchased credit impaired loans acquired are loans that have evidence of credit deterioration since origination and as to which it is probable at the date of acquisition that the Company will not collect all of principal and interest payments according to the contractual terms. These loans are accounted for under ASC 310-30.
 
Based on our evaluation of the housing and real estate markets and overall economy, including the unemployment rate, the levels and composition of our loan delinquencies and non‑performing loans, our loss history and the size and composition of our loan portfolio, we determined that an ALLL of $3.4 million, or 0.52% of loans held for investment, was appropriate at December 31, 2021, compared to $3.2 million, or 0.88% of loans held for investment at December 31, 2020. The ALLL as a percentage of gross loans decreased because acquired loans are recorded at fair value without any ALLL at the acquisition date. This decrease was partially offset by an increase in the required allowance due to an increase in the outstanding balances of loans not acquired in the Merger.
 
A federally chartered bank’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the OCC. The OCC, in conjunction with the other federal banking agencies, provides guidance for financial institutions on the responsibilities of management for the assessment and establishment of adequate valuation allowances, as well as guidance for banking agency examiners to use in determining the adequacy of valuation allowances. It is required that all institutions have effective systems and controls to identify, monitor and address asset quality problems, analyze all significant factors that affect the collectability of the portfolio in a reasonable manner and establish acceptable allowance evaluation processes that meet the objectives of the guidelines issued by federal regulatory agencies. While we believe that the ALLL has been established and maintained at adequate levels, future adjustments may be necessary if economic or other conditions differ materially from the conditions on which we based our estimates at December 31, 2021. In addition, there can be no assurance that the OCC or other regulators, as a result of reviewing our loan portfolio and/or allowance, will not require us to materially increase our ALLL, thereby affecting our financial condition and earnings.
 
The following table details our allocation of the ALLL to the various categories of loans held for investment and the percentage of loans in each category to total loans at the dates indicated:
 
   
December 31,
       
   
2021
   
2020
   
2019
   
2018
   
2017
 
   
Amount
   
Percent
of loans
in each
category
to total
loans
   
Amount
   
Percent
of loans
in each
category
to total
loans
   
Amount
   
Percent
of loans
in each
category
to total
loans
   
Amount
   
Percent
of loans
in each
category
to total
loans
   
Amount
   
Percent
of loans
in each
category
to total
loans
 
   
(Dollars in thousands)
       
Single family
 
$
145
     
0.02
%
 
$
296
     
0.08
%
 
$
312
     
0.08
%
 
$
368
     
0.10
%
 
$
594
     
0.17
%
Multi‑family
   
2,657
     
0.41
%
   
2,433
     
0.67
%
   
2,319
     
0.58
%
   
1,880
     
0.52
%
   
2,300
     
0.68
%
Commercial real estate
   
236
     
0.04
%
   
222
     
0.06
%
   
133
     
0.03
%
   
52
     
0.02
%
   
71
     
0.02
%
Church
   
103
     
0.02
%
   
237
     
0.06
%
   
362
     
0.09
%
   
604
     
0.17
%
   
1,081
     
0.32
%
Construction
   
212
     
0.03
%
   
22
     
0.01
%
   
48
     
0.01
%
   
19
     
0.01
%
   
17
     
0.01
%
Commercial
   
23
     
0.00
%
   
4
     
0.00
%
   
7
     
0.00
%
   
6
     
0.00
%
   
6
     
0.00
%
Consumer
   
15
     
0.00
%
   
1
     
0.00
%
   
1
     
0.00
%
   
-
     
0.00
%
   
-
     
0.00
%
Total allowance for loan losses
 
$
3,391
     
0.52
%
 
$
3,215
     
0.88
%
 
$
3,182
     
0.79
%
 
$
2,929
     
0.82
%
 
$
4,069
     
1.20
%
 
The following table shows the activity in our ALLL related to our loans held for investment for the years indicated:
 
   
2021
   
2020
   
2019
   
2018
   
2017
 
   
(Dollars in thousands)
 
Allowance balance at beginning of year
 
$
3,215
   
$
3,182
   
$
2,929
   
$
4,069
   
$
4,603
 
Charge‑offs:
                                       
Single family
 
   
   
   
   
 
Multi‑family
 
   
   
   
   
 
Commercial real estate
 
   
   
   
   
 
Church
 
   
   
   
   
 
Commercial
 
   
   
   
   
 
Total charge‑offs
 
   
   
   
   
 
                                         
Recoveries:
                                       
Single family
   
-
     
4
   
   
     
30
 
Commercial real estate
 
   
   
   
   
 
Church
   
-
     
-
     
260
     
114
     
536
 
Commercial
 
   
   
   
   
 
Total recoveries
   
-
     
4
     
260
     
114
     
566
 
Loan loss provision (recapture)
   
176
     
29
     
(7
)
   
(1,254
)
   
(1,100
)
Allowance balance at end of year(1)
 
$
3,391
   
$
3,215
   
$
3,182
   
$
2,929
   
$
4,069
 
Net charge‑offs (recoveries) to average loans, excluding loans receivable held for sale
   
0.00
%
   
(0.00
%)
   
(0.07
%)
   
(0.04
%)
   
(0.16
%)
ALLL as a percentage of gross loans (2), excluding loans receivable held for sale
   
0.52
%
   
0.88
%
   
0.79
%
   
0.82
%
   
1.20
%
ALLL as a percentage of total non‑accrual loans
   
495.76
%
   
408.51
%
   
750.47
%
   
321.51
%
   
230.41
%
ALLL as a percentage of total non‑performing assets
   
495.76
%
   
408.51
%
   
750.47
%
   
167.94
%
   
153.90
%


(1)
Including net deferred loan costs and premiums.
 

(2)
The ALLL as of December 31, 2021 does not include any ALLL for the remaining balance of loans acquired in the City First Merger, which totaled $203.8 million as of that date.
 
Investment Activities
 
The main objectives of our investment strategy are to provide a source of liquidity for deposit outflows, repayment of our borrowings and funding loan commitments, and to generate a favorable return on investments without incurring undue interest rate or credit risk. Subject to various restrictions, our investment policy generally permits investments in money market instruments such as Federal Funds Sold, certificates of deposit of insured banks and savings institutions, direct obligations of the U. S. Treasury, securities issued by federal and other government agencies and mortgage‑backed securities, mutual funds, municipal obligations, corporate bonds, and marketable equity securities. Mortgage‑backed securities consist principally of securities issued by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Government National Mortgage Association which are backed by 30‑year amortizing hybrid ARM Loans, structured with fixed interest rates for periods of three to seven years, after which time the loans convert to one‑year or six‑month adjustable rate mortgage loans. At December 31, 2021, our securities portfolio, consisting primarily of federal agency debt, mortgage‑backed securities, bonds issued by the United States Treasury and the SBA,  and municipal bonds, totaled $156.4 million, or 14.30% of total assets.
 
We classify investments as held‑to‑maturity or available‑for‑sale at the date of purchase based on our assessment of our internal liquidity requirements. Securities purchased to meet investment‑related objectives such as liquidity management or mitigating interest rate risk and which may be sold as necessary to implement management strategies, are designated as available‑for‑sale at the time of purchase. Securities in the held‑to‑maturity category consist of securities purchased for long‑term investment in order to enhance our ongoing stream of net interest in0come. Securities deemed held‑to‑maturity are classified as such because we have both the intent and ability to hold these securities to maturity. Held‑to‑maturity securities are reported at cost, adjusted for amortization of premium and accretion of discount. Available‑for‑sale securities are reported at fair value. We currently have no securities classified as held‑to‑maturity securities.
 
The table below presents the carrying amount, weighted average yields and contractual maturities of our securities as of December 31, 2021. The table reflects stated final maturities and does not reflect scheduled principal payments or expected payoffs.
 
   
At December 31, 2021
 
   
One Year or less
   
More than one
year
to five years
   
More than five
years
to ten years
   
More than
ten years
   
Total
 
   
Carrying
amount
   
Weighted
average
yield
   
Carrying
amount
   
Weighted
average
yield
   
Carrying
amount
   
Weighted
average
yield
   
Carrying
amount
   
Weighted
average
yield
   
Carrying
amount
   
Weighted
average
yield
 
   
(Dollars in thousands)
 
Available‑for‑sale:
                                                           
Federal agency mortgage‑backed securities
 
$
-
     
-
%
 
$
593
     
1.12
%
 
$
15,271
     
0.96
%
 
$
54,166
     
1.75
%
 
$
70,030
     
1.57
%
Federal agency CMO
   
-
     
-
%
   
-
     
-
%
   
5,443
     
0.51
%
   
3,844
     
1.30
%
   
9,287
     
0.83
%
Federal agency debt
   
1,013
     
0.17
%
   
14,716
     
0.94
%
   
19,142
     
1.20
%
   
3,117
     
0.51
%
   
37,988
     
1.01
%
Municipal bonds
   
-
     
-
%
   
-
     
-
%
   
3,160
     
1.45
%
   
1,755
     
1.56
%
   
4,915
     
1.49
%
U.S. Treasuries
   
-
     
-
%
   
17,951
     
0.74
%
   
-
     
-
%
   
-
     
-
%
   
17,951
     
0.74
%
SBA pools
   
-
     
-
%
   
-
     
-
%
   
3,302
     
2.00
%
   
12,923
     
1.79
%
   
16,225
     
1.83
%
Total
 
$
1,013
     
0.17
%
 
$
33,260
     
0.83
%
 
$
46,318
     
1.11
%
 
$
75,805
     
1.68
%
 
$
156,396
     
1.32
%
 
At December 31, 2021, the securities in our portfolio had an estimated remaining life of 5.03 years.  During 2021, the Bank purchased 5 federal agency mortgage-backed securities with total amortized cost of $9.6 million, estimated fair value of $9.6 million at December 31, 2021 and an estimated average remaining life of 5.4 years; 2 federal agency debt with total amortized cost of $4.9 million, estimated fair value of $4.9 million at December 31, 2021 and an estimated average remaining life of 4.7 years; and 1 federal agency CMO with total amortized cost of $2.0 million, estimated fair value of $1.9 million at December 31, 2021 and an estimated average remaining life of 5.1 years.    As a result of the merger with CFBanc, we acquired $76.5 million of Federal agency mortgage-backed securities, $33.2 million of Federal agency debt securities, $18.2 million of U.S. Treasury securities, $15.2 million of SBA pool securities, $3.9 million of Federal agency CMOs, and $2.9 million of municipal bonds. There were no sales of securities during the year ended December 31, 2021.
 
The following table sets forth the amortized cost and fair value of available-for-sale securities by type as of the dates indicated. At December 31, 2021, our securities portfolio did not contain securities of any issuer with an aggregate book value in excess of 10% of our equity capital, excluding those issued by the United States Government or its agencies.
 
At December 31,
2021
 
2020
 
2019
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
(Dollars in thousands)
 
Federal agency mortgage-backed securities
 
$
70,078
 
$
70,030
 
$
5,550
 
$
5,807
   
$
7,793
   
$
7,957
 
Federal agency collateralized mortgage obligations (“CMO”)
   
9,391
   
9,287
   
-
   
-
     
-
     
-
   
Federal agency debt
   
38,152
   
37,988
   
2,682
   
2,827
     
3,104
     
3,050
   
Municipal bonds
   
4,898
   
4,915
   
2,000
   
2,019
     
-
     
-
   
U.S. Treasuries
   
18,169
   
17,951
   
-
   
-
     
-
     
-
   
SBA pools
   
16,241
   
16,225
   
-
   
-
     
-
     
-
 
Total
 
$
156,929
 
$
156,396
 
$
10,232
 
$
10,698
   
$
10,807
   
$
11,007
 
 
Sources of Funds
 
General
 
Deposits are our primary source of funds for supporting our lending and other investment activities and general business purposes. In addition to deposits, we obtain funds from the amortization and prepayment of loans and investment securities, sales of loans and investment securities, advances from the FHLB, and cash flows generated by operations.
 
Deposits
 
We offer a variety of deposit accounts featuring a range of interest rates and terms. Our deposits principally consist of savings accounts, checking accounts, NOW accounts, money market accounts, and fixed‑term certificates of deposit. The maturities of term certificates generally range from one month to five years. We accept deposits from customers within our market area based primarily on posted rates, but from time to time we will negotiate the rate based on the amount of the deposit. We primarily rely on customer service and long‑standing customer relationships to attract and retain deposits. We seek to maintain and increase our retail “core” deposit relationships, consisting of savings accounts, checking accounts and money market accounts because we believe these deposit accounts tend to be a stable funding source and are available at a lower cost than term deposits. However, market interest rates, including rates offered by competing financial institutions, the availability of other investment alternatives, and general economic conditions significantly affect our ability to attract and retain deposits.
 
We participate in a deposit program called the Certificate of Deposit Account Registry Service (“CDARS”). CDARS is a deposit placement service that allows us to place our customers’ funds in FDIC‑insured certificates of deposit at other banks and, at the same time, receive an equal sum of funds from the customers of other banks in the CDARS Network (“CDARS Reciprocal”). These deposits totaled $141.6 million and $35.8 million at December 31, 2021 and 2020, respectively and are not considered to be brokered deposits.
 
We may also accept deposits from other institutions when we have no reciprocal deposit (“CDARS One‑Way Deposits”). With the CDARS One-Way Deposits program, the Bank accepts deposits from CDARS even though there is no customer account involved. These one-way deposits, which are considered to brokered deposits, totaled $223 thousand and $9.6 million at December 31, 2021 and 2020, respectively. The decrease in CDARS One-Way Deposits in 2021 was attributable to an increase in the Bank’s overall liquidity and the intentional non-renewal of these deposits at maturity due to their high cost relative to other deposit sources.
 
At December 31, 2021 and 2020, the Bank had $5.0 million and $15.1 million in (non-CDARS) brokered deposits, respectively.
 
The following table details the maturity periods of our certificates of deposit in amounts of $100 thousand or more at December 31, 2021.
 
   
December 31, 2021
 
   
Amount
   
Weighted
average rate
 
   
(Dollars in thousands)
 
Certificates maturing:
           
Less than three months
 
$
52,141
     
0.19
%
Three to six months
   
61,571
     
0.24
%
Six to twelve months
   
61,401
     
0.22
%
Over twelve months
   
5,522
     
0.50
%
Total
 
$
180,635
     
0.22
%

The following table presents the distribution of our average deposits for the years indicated and the weighted average interest rates during the year for each category of deposits presented.
 
   
For the Year Ended December 31,
 
   
2021
   
2020
   
2019
 
   
Average
balance
   
Percent
of total
   
Weighted
average
cost of funds
   
Average
balance
   
Percent
of total
   
Weighted
average
cost of funds
   
Average
balance
   
Percent
of total
   
Weighted
average
cost of funds
 
   
(Dollars in thousands)
 
Money market deposits
 
$
159,157
     
24.77
%
   
0.41
%
 
$
47,611
     
14.88
%
   
0.71
%
 
$
25,297
     
8.86
%
   
0.88
%
Passbook deposits
   
67,660
     
10.53
%
   
0.30
%
   
55,985
     
17.51
%
   
0.50
%
   
45,548
     
15.95
%
   
0.63
%
NOW and other demand deposits
   
223,003
     
34.70
%
   
0.05
%
   
55,003
     
17.17
%
   
0.03
%
   
34,091
     
11.94
%
   
0.03
%
Certificates of deposit
   
192,795
     
30.00
%
   
0.37
%
   
161,409
     
50.44
%
   
1.56
%
   
180,611
     
63.25
%
   
2.08
%
Total
 
$
642,615
     
100.00
%
   
0.26
%
 
$
320,008
     
100.00
%
   
0.99
%
 
$
285,547
     
100.00
%
   
1.50
%
 
Borrowings
 
We utilize short‑term and long‑term advances from the FHLB as an alternative to retail deposits as a funding source for asset growth. FHLB advances are generally secured by mortgage loans and mortgage‑backed securities. Such advances are made pursuant to several different credit programs, each of which has its own interest rate and range of maturities. The maximum amount that the FHLB will advance to member institutions fluctuates from time to time in accordance with the policies of the FHLB. At December 31, 2021, we had $85.9 million in outstanding FHLB advances and had the ability to borrow up to an additional $14.4 million based on available and pledged collateral.
 
The following table summarizes information concerning our FHLB advances at or for the periods indicated:
 
   
At or For the Year Ended
 
   
2021
   
2020
   
2019
 
   
(Dollars in thousands)
 
FHLB Advances:
                 
Average balance outstanding during the year
 
$
100,471
   
$
114,020
   
$
77,049
 
Maximum amount outstanding at any month‑end during the year
 
$
113,580
   
$
121,500
   
$
84,000
 
Balance outstanding at end of year
 
$
85,952
   
$
110,500
   
$
84,000
 
Weighted average interest rate at end of year
   
1.85
%
   
1.94
%
   
2.32
%
Average cost of advances during the year
   
1.96
%
   
1.91
%
   
2.42
%
Weighted average maturity (in months)
   
22